Mediclinic bid puts Remgro stakes in focus

• Concerned parties question a possible conflict of interest and information cross-sharing

Remgro’s shareholding in Discovery and Momentum Metropolitan Holdings was in focus on Wednesday as concerned academics and civil society organisation Section 27 raised questions at the public hearings held by the Competition Tribunal over the multibillion-rand takeover of Mediclinic by a consortium led by Remgro.

Remgro’s shareholding in Discovery and Momentum Metropolitan Holdings (MMH) came into sharp focus at the public hearings held by the Competition Tribunal over the multibillion-rand takeover of Mediclinic by a consortium led by Remgro.

Remgro, Johann Rupert’s investment vehicle, already owns 44.56% of Mediclinic. The company, in partnership with Mediterranean Shipping Company (MSC), last year made an offer of £3.7bn to acquire the rest of Mediclinic and delist it from the JSE.

The bid was accepted by Mediclinic’s board after it rejected three previous ones, deeming them too low.

A group of concerned academics and civil society organisation Section 27 told the Competition Tribunal on Wednesday to impose tighter conditions to ensure that cross-sharing of information is restricted between the numerous groups that Remgro holds stakes in.

The critics also warned that the deal could increase concentration in healthcare market.

While not totally opposing the merger, the interested parties said the scale of the merger and the players involved called for deeper interrogation in the context of the systemic challenges highlighted in the health market inquiry.

“We are not opposing the merger, but the question really is whether the structure of conditions is appropriate given the systemic risks involved with players of this scale,” said Wits professor Alex van den Heever.

Questioning the possible conflict of interest and integrity of the existence of a potential relationship between the healthcare funders and a major hospital group which is in a position to influence demand, they said the corporate structures of the owners allowed for strategic developments in any part of the SA private health system at their discretion.

“A merger without conditions that address competition concerns would pose risks to the private health system by leaving the decision to invest strategically on both the supply and demand side entirely to the discretion of Manta and Remgro,” Van den Heever said.

Manta Bidco is a newly formed company owned by a subsidiary of Remgro and a wholly owned subsidiary of MSC.

Van den Heever added that Remgro also has an 18% interest in the National Healthcare Group, which has a wide variety of provider networks and health insurance, including network formation arrangements.

However, counsel for the merging parties, Michelle le Roux, hit back, saying there were no competition or public interest concerns that arise as a result of the transaction.

She said Remgro holds only non-controlling interests of 7.7% in Discovery and 8.6% in MMH, and argued that Remgro was not entitled to appoint any directors on those boards, nor was it able to access any confidential information.

“There is simply not the relationship with Discovery or MMH that could give rise to any of the kinds of concerns or effects mentioned in the submissions,” said Le Roux, adding that the company only gets publicly available information from the JSE. “It simply does not have access to the information that it would need to do this elaborate co-ordination that seems to rest at the heart of the submissions.”

The Competition Commission, which investigates and refers proposed large mergers to the tribunal for a decision, recommended that the transaction be approved with conditions.

The conditions the commission proposed include a moratorium on retrenchments, the creation of an employee benefits scheme, a commitment to procure from local black-owned and emerging businesses over the next five years, and funding of skills development.

The competition watchdog also wants a commitment from Mediclinic to assist in relieving the public healthcare sector backlog of surgeries by performing 1,000 pro bono surgeries over the next five years.

The consortium said the package of voluntary conditions agreed on with the department of trade, industry & competition and the commission related to its proposed takeover of Mediclinic is sufficient to satisfy merger-specific concerns while the buyout is unlikely to lessen competition in the healthcare sector.

The concerned parties have called for the tribunal to strengthen the recommended conditions by the Competition Commission, namely collaboration with the public health sector and ensuring that the doctor collaboration programmes are enforced.

The Mediclinic group, which was founded by the Remgro group in the 1980s, operates 74 hospitals, five subacute hospitals, two mental health facilities, 20 day-case clinics and 22 outpatient clinics in SA, Namibia, Switzerland and the Middle East.

Mediclinic also holds a 29.7% interest in UK-based private healthcare group Spire Healthcare, which is listed on the London Stock Exchange.

THE CRITICS ALSO WARNED THAT THE DEAL MAY INCREASE CONCENTRATION IN THE HEALTHCARE MARKETS